Philip King, CEO of Institute of Credit Management (ICM) - 'Judge or Jury'

I had the privilege of sitting on the judging panel last week for the SME category of the National Business Awards. It was the first time I've been a judge where the nominees have to present a 'pitch' and it was a fascinating experience. I've always wondered what it felt like to be a dragon in the den, and I guess this is the closest I'll ever get to finding out!

There were 12 entries and we spent a long day listening to a series of presentations from a range of very diverse businesses. It was inspirational hearing from people who have turned an idea into a business that is thriving and, in some cases, hugely successful in a very short space of time.

The common theme, certainly among the front runners, was unbridled energy and enthusiasm and a passion for a business that entrepreneurs saw as 'their baby'. If those qualities could be replicated and reproduced across business, it's hard to believe we'd still be struggling to see the recovery for which we all yearn. So often, the idea was simple and certainly not rocket science. As a judge, I was left thinking why somebody else hadn't thought of it before and wishing I had a more creative mind that could spot what seemed like obvious opportunities once somebody else has pointed them out!

The Start-Up Loans Company in which I'm involved has now started lending and, at the Board Meeting this week, we were hearing examples of young people who are determined to turn an idea into a successful business and - judging by their determination - will do so.

On the political front, we've heard Vince Cable's announcement about the new Government-funded bank to support SMEs. The devil, as always, will be in the detail but I certainly welcome the plan to bring together in one place Government finance support for small and mid-sized businesses. As I've said here recently, the multiplicity and complexity of schemes often results in them almost working against each other so if the new bank helps to simplify and de-clutter the landscape, it can only be a good thing.

It was good to meet Michael Fallon, the new Business Minister, this week and I'm at the Labour and Conservative conferences over the next two weeks. It will be interesting to hear what the parties have to say at this mid-way point of the current Government.

Weekly Blog by Philip King, CEO of the ICM - 'Making business add up'

I've been catching up on reading that accumulated while I was on holiday and had a look at the SME Finance Monitor over last weekend; the full document can be found here: http://www.sme-finance-monitor.co.uk

 

A few interesting statistics struck me: 43% SMEs are using external finance, compared with 51% a year ago; 34% of loan and 21% of overdraft applications were declined; banks offered alternative funding or pointed to alternative sources of finance in just 9% (loans) and 13% (overdrafts) of cases; 70% of those declined felt the advice they received from the bank was poor and 25% were not given reasons for the decline decision. Almost more alarmingly, only 8% (loans) and 14% (overdrafts) of declined applicants were aware of the appeals process even though it's been available for well over a year now, and just 47% were aware of any of the Government's lending initiatives, of which the National Loan Guarantee Scheme is but one example.

 

So we still haven't fixed the problem that banks (and the Government) aren't communicating adequately with the SME community, and the message persists, particularly from the media and some business organisations, that banks remain reluctant to lend. But we do also need a sense of balance.

 

I've just started listening to Jonathan Moules' book 'The Rebel Entrepreneur'. Jonathan has been Enterprise Correspondent at the Financial Times for several years and he makes the point in an early chapter that, although the banks may seem reluctant to lend, there is a balancing argument that says the current economic situation is in part due to banks lending when they shouldn't have done so, and on terms that were unsustainable. He argues that many businesses do not merit being lent to, and gives examples of very successful businesses that achieved their growth by managing in the early days on a shoestring and refusing to incur debt that could sooner or later become a millstone. If the banks don't impose sensible lending policies, we'll be in danger of repeating the cycle all over again.

 

I'm an avid follower of Dragons' Den and it's hard not to be frustrated by entrepreneurs who clearly have a brilliant business idea but cannot remember, or worse do not know, the salient financials on which their request for funding is based. If someone cannot say how much the business turned over or made/lost in the recent past, then why would anyone have the confidence to risk their own capital? Talking to bankers I hear many examples of businesses who seek funding based on a business case that is at best unrealistic and, at worst, simply doesn't add up (literally).

 

Just as businesses have to help themselves by applying basic credit management principles, so they need to think through their plans and ensure they put together a business case that is realistic and believable before they ask for funding. The more information they provide, and the better it is, the greater their chance of success. 

Weekly Blog by Philip King, CEO of the ICM - 'Reading between the lines?'

Last week Vince Cable announced that the Government was tabling the Statutory Instrument to implement the planned changes to accounting thresholds.  The accompanying BIS press release heralded the fact that allowing 36,000 more companies to choose not to have an audit "will help save UK companies millions every year and free them up to expand and grow their business, which ultimately benefits the entire British economy".

 

How frustrating it is to see the Government fail to grasp a fundamental principle of trade credit and business. Suppliers make credit decisions based on the information available to them; the more information, and the more reliable it is, the better will be the quality of the decision.  It follows that, where the information supports it, credit will be more readily available to the business requiring the goods or service.  Most likely, 36,000 companies will now follow the implicit steer from Government and leave potential suppliers struggling to justify the granting of credit.  Will that aid economic growth? I think not!

 

We should remind ourselves what audits do.  Formally, they ensure the accounts represent a true and fair view of the company's financial situation giving suppliers confidence in the status of the business they're being asked to support through the provision of goods or services on credit.  But they do much more besides.  Very often, they highlight errors in the business's accounting system, records or processes, they identify any gaps or omissions that could be attributable to inefficiency or, worse, fraud, and they provide an independent and objective view of the business.  A good auditor can be very useful to a business; I know the ICM's auditor takes a real interest in its business and our discussions go far beyond the accounts and the numbers.

 

Interestingly, only this week, I saw a draft article for a European magazine by a university academic referring to the positive impact of the changes in 2006 that obliged German companies, especially small and medium-sized ones, to disclose financial statements and the resulting increased transparency!

 

I understand the thinking behind the changes and I have no problem for micro-businesses with very low turnover where accounting is cash-based and simple, but we're talking here about businesses with turnover up to £6.5m and 50 employees.  When an error eventually comes to light and the company fails because it's too late to do anything about it, there will be impacts on the business, its suppliers, its employees and the economy.  The suggestion that something that can be so invaluable is an unnecessary regulatory burden is misguided, naive, and unhelpful.

Weekly Blog by Philip King, CEO of the ICM - 'Shuffling the pack'

 

I'm always fascinated by arguments about correct usage of words and I was amused by a debate on the Radio 4 Today programme on Tuesday about whether, since the bulk movement of Ministerial appointments was the first by David Cameron, it should actually be called a shuffle rather than a reshuffle. A complete irrelevance but nevertheless quite fun!

 

More interesting has been the debate about the real reasons for the changes and whether they are to achieve policy shifts, to recognise good or poor performance, to change the political spin brought to specific areas of government activity, or simply to change the shape or style of the ministerial team. There are many and diverse views about this, and I suspect the reality is that it is a combination of all four and some more besides.

 

Speaking personally, I'm sorry to see Mark Prisk move from his role as Minister of State for Business and Enterprise. Although I haven't always agreed with him, he is tuned into business and seems to understand well the challenges they face. It will be interesting to see whether Michael Fallon maintains the momentum started by Mark but the inactivity caused by ministerial transition is always frustrating even though it's nothing new and expected.

 

Whatever the motivations for the changes, many issues remain and require resolution, one of which is the amount of debt owed to central government estimated to cost the public purse £7-8billion per year. Earlier this year, the interim report 'Tackling Debt owed to Government' was issued by the Cabinet Office's Fraud, Error and Debt Taskforce and since then the Institute has continued its engagement with the task force and the Debt Expert Panel in identifying how professionalism in debt management across government can be enhanced and improved. As part of that work, we are pleased to be working in association with Dods who are delivering a conference in London on 15 October considering the issues raised by the report, reviewing the activity underway, and looking to the future. If you're involved in working in, or with, the public sector in any way and want to attend, please register here, and I'm pleased to say ICM members can gain a £200 discount from the standard conference fee.